Definition - What does Underwriting Gain mean?
Underwriting gain is net premiums less any claims and other insurance related expenses, but it does not include other income, such as investment gains. It, therefore, indicates how well an insurance firm handles its underwriting policies or the viability of the insurance business.
Insuranceopedia explains Underwriting Gain
In general, underwriting gain may be considered the excess of premiums over claims. A further breakdown leads to premiums minus reinsurance premiums, company operating expenses, loss adjustment expenses, marketing, and commission expenses and claims. Therefore, underwriting income is income arising solely from insurance activities.
Sometimes, an underwriting loss occurs when expenses outweigh premiums. This can result from poor underwriting techniques that lead to higher than anticipated losses. Thus, setting premium rates is very important to an insurer's financial solvency. However, there are times when major unforeseen events, such as natural disasters or terrorist acts, may significantly affect underwriting gain and lead to unexpected losses.